Anticompetitive unilateral conduct

Abuse of dominance

In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

The Competition Act (CA02) lists certain conduct, which, if practised by a firm in a dominant position, shall be considered an abuse of dominant position. This includes the following:

  • imposing unfair or discriminatory conditions or prices on sale of goods;
  • limiting or restricting the production of goods, or technical or scientific development;
  • denying market access;
  • making the conclusion of contracts subject to the acceptance of obligations that have no connection with the subject matter of the contract; or
  • using its dominant position in one relevant market to enter into or protect another.
De minimis thresholds

Is there any de minimis threshold for a conduct to be found abusive?

Under the CA02, once it is determined that the enterprise is dominant, there is no de minimis threshold for abusive conduct. Given the Competition Commission of India (CCI)'s propensity to define the markets narrowly, the conduct in question may be found abusive even if the market size is very small or the number of customers being affected is insignificant.

For instance, in House of Diagnostics LLP v Esaote SpA & Anr (Case No. 9 of 2016), the CCI defined the relevant market as the market for ‘dedicated standing/tilting MRI machines in India’, distinguishing this market from regular MRI machines on account of its unique tilting system. Esaote, being the only manufacturer of dedicated tilting MRI machines, was found to have a 100 per cent market share, and thus a dominant enterprise, in spite of the fact that Esaote had sold very few machines in India. Esaote’s alleged conduct (refusal to perform contractual obligations and unilaterally changing the essential terms of the contract) was examined only in respect of the informant (and no other consumers) and one supply order. On this basis alone, the CCI reached a finding that Esaote had abused its dominant position in the identified relevant market and imposed a penalty of 0.9 million rupees.

Similarly, in  Shamsher Kataria v Honda Siel Cars India Ltd & Ors  (Case No. 3 of 2011), the CCI defined the relevant market as the market for sale of spare parts in respect of each original equipment manufacturer’s (OEM) brand. The CCI found each OEM to be dominant in the supply of spare parts pertaining to their brand, and concluded that each enterprise had abused its dominant position in that relevant market by, inter alia, charging excessive prices for spare parts and denying market access to multi-brand workshops and independent repairers.

Market definition

Do antitrust authorities approach market definition in the context of unilateral conduct in the same way as in mergers? If not, what are the main differences and what justifies them?

The CA02 makes no distinction in its approach towards market definition in the context of unilateral conduct and mergers. It states that the relevant market must be determined with reference to the relevant product market and the relevant geographic market. To this extent, the CA02 lists certain factors that must be considered by the CCI while determining the relevant product market and the relevant geographic market, such as:

  • for the relevant product market:
    • physical characteristics or end-use of goods;
    • price of goods or services;
    • consumer preferences;
    • exclusion of in-house production;
    • existence of specialised producers; and
    • classification of industrial products; and
  • for the relevant geographic market:
    • regulatory trade barriers;
    • local specification requirements;
    • national procurement policies;
    • adequate distribution facilities;
    • transport costs;
    • language;
    • consumer preferences; and
    • need for secure or regular supplies or rapid after-sales services.

 

Notably, the decisional practice of the CCI thus far leans in favour of relatively narrow market definitions. For instance, in Naveen Kataria v Jaiprakash Associates Limited (Case No. 99 of 2014) , the CCI defined the relevant market in the narrowest possible way as the market for ‘market for the provision of development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships in Noida and Greater Noida’. In Sun Pharma/Ranbaxy (Combination Registration No. C-2014/05/170), the CCI defined the relevant market at the narrowest ATC4 level for each formulation. The CCI in The Federation of Hotel & Restaurant Associations of India v MakeMyTrip India Pvt Ltd & Ors (Case No. 14 of 2019) defined the relevant market narrowly as ‘market for online intermediation services for booking of hotels in India’ for MMT and ‘market for franchising services for budget hotels in India’ for the other opposite party, OYO.

Establishing dominance

When is a party likely to be considered dominant or jointly dominant? Can a patent owner be dominant simply on account of the patent that it owns?

An enterprise is considered dominant if it enjoys a position of strength that allows it to act independently of competitive forces in the market, or can affect the relevant market, competitors or consumers in its favour. The CA02 lists certain factors that the CCI must consider while assessing whether a firm is in a dominant position, including:

  • market share of the enterprise;
  • size and resources of the enterprise;
  • size and importance of the competitors;
  • economic power of the enterprise, including commercial advantages over competitors;
  • vertical integration of the enterprises or sale or service network of such enterprises;
  • dependence of consumers on the enterprise;
  • monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise;
  • entry barriers, including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
  • countervailing buying power;
  • market structure and size of market;
  • social obligations and social costs;
  • relative advantage, by way of the contribution to economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition (AAEC); and
  • any other factor the CCI may consider relevant for the inquiry.

 

The CCI has often considered high market shares as a proxy for dominance (Belaire Owners Association v DLF (Case No. 19 of 2010)). However, the CCI noted in Meru Travel Solutions Pvt Ltd v ANI Technologies Pvt Ltd & Ors (Case No. 25-28 of 2017) that while market shares are theoretically an important indicator for lack of competitive restraints, it is not a conclusive indicator of dominance. Similarly, in National Stock Exchange v Competition Commission of India & MCX (Appeal No. 15 of 2011), the Competition Appellate Tribunal (COMPAT) held that one had to consider a whole host of factors in addition to market share, including the size and resources of the enterprise, the extent of vertical integration and the economic power of the enterprise. The COMPAT concluded that, given the enormous economic strength of the National Stock Exchange (NSE), its high market share in other segments of the market for trading and its ability to leverage its market power in other segments to protect its position in the currency derivatives (CD) segment, it could be said to be dominant in the CD segment. Notably, the COMPAT held the NSE to be dominant in the CD segment even though the NSE’s market shares had drastically fallen over the past few years owing to the operations of other enterprises present in the segment.

Lastly, the CA02 does not recognise the concept of joint dominance. In In Re: Mr Arjun and Viacom 18 & Ors (Case No. 57 of 2017), the CCI dismissed allegations of joint dominance against a group of digital cinema equipment suppliers because section 4 of the CA02 did not allow more than one enterprise to hold a dominant position within a given relevant market. More recently, the CCI has reiterated this view in a number of cases, including investigation orders in In Re: Delhi Vyapar Mahasangh v Flipkart and Amazon (Case No. 40 of 2019), Fast Track Call Cabs Pvt Ltd v Meru Travel Solutions Pvt Ltd (Cases Nos. 6 and 74 of 2015) and The Federation of Hotel & Restaurant Associations of India v MakeMyTrip India Pvt Ltd & Ors (Case No. 14 of 2019).

IP rights

To what extent can an application for the grant or enforcement of a patent or any other IP right (SPC, etc) expose the patent owner to liability for an antitrust violation?

The CA02 does not prohibit or identify the mere application for the grant of a patent or the initiation of enforcement actions as anticompetitive. In practice, the CCI has opened the door for antitrust claims against IP holders’ enforcement actions, including by way of injunctions.

Notably, the CA02 provides a limited carve-out for patent holders from antitrust liability in respect of anticompetitive agreements to the extent that the patentee's conduct is necessary for the protection of its patents under the Patents Act. However, the same conduct may expose the patent holder to antitrust liability if it is found to be in a dominant position.

For instance, in the context of enforcing copyright and designs, in Bull Machines Pvt Ltd v JCB India (Case No. 105 of 2013), Bull Machines alleged that JCB had initiated bad faith litigation claiming infringement of its copyright and designs against it and, by doing so, had abused its dominant position in the market for backhoe loaders in India. The CCI, in its preliminary order, found merit in the argument and ordered an investigation, noting that ‘predation through judicial processes presents an increasingly [sic] threat to competition, particularly due to its low antitrust visibility’. By ordering an investigation into the actions of JCB, the CCI demonstrated that vexatious infringement suits might be capable of being construed as an abuse of dominant position.

More recently, however, the CCI appears to have adopted a more cautionary approach while considering the use of court proceedings to enforce legitimate intellectual property rights as abusive. For instance, while directing an investigation in Biocon Limited & Mylan Pharmaceuticals Private Limited v F Hoffmann-La Roche AG & Ors (Case No. 68 of 2016) (Biocon v Roche), the CCI, in its preliminary order, noted that recourse to legal proceedings is a right of every party and, as a general principle, cannot be viewed as being sham litigation except under exceptional circumstances. In sum, the CCI is likely to test whether the actions of an IP holder, including by way of an application for the grant or enforcement of a patent, are genuine or merely the means to foreclose competition.

When would life-cycle management strategies expose a patent owner to antitrust liability?

The application of competition law to intellectual property is still at a relatively nascent stage in India. Complaints filed with the CCI involving the implementation (or non-implementation) of fair, reasonable and non-discriminatory disputes or vexatious litigation following infringement claims are being challenged on jurisdictional issues (ie, whether the CCI, as an antitrust regulator, has requisite jurisdiction to determine these issues when sector-specific regulators exist). That said, the CCI is unlikely to intervene if the restriction or strategy in question is within the scope of the legitimate exercise of the patent right (as under the relevant IP statute). Moreover, where the strategy in question is both reasonable and necessary to protect such right, it is likely to pass muster under the CA02. In Shri Anand Prakash Agarwal v Dakshin Haryana Bijli Vitran Nigam (Case No. 1 of 2016), the CCI recognised that objective commercial justifications were an effective defence against allegations of abuse of dominant position. However, more recently in Matrix Info Systems Private Limited v Intel Corporation (Intel) and Anr (Case No. 5 of 2019), the CCI ordered an investigation for abuse of dominance by Intel for enforcing warranty service through authorised dealers and rejected the justifications such as the selling of under-invoiced products through unauthorised dealers, ensuring quality service to the customers, etc.

A common strategy implemented by pharmaceutical companies to increase the life of their patents is ‘product hopping’. This involves discontinuing a patented drug towards the end of its patent term and introducing a reformulated ‘second generation’ drug, which may or may not offer distinct improvements over the first-generation drug. Under the CA02, while the introduction of a new product is not per se anticompetitive, while examining whether this strategy is a legitimate use of its patent rights from a competition perspective, the CCI is likely to examine the overall conduct of the patent holder in launching a new product (whether and how often this practice is adopted) and the effect on the ultimate consumer and the market.

Other life-cycle management strategies, such as creating a ‘patent cluster’, are likely to be scrutinised more closely by the CCI. Patent clusters involve the coming together of multiple companies to create new products by tying the product-creation process with existing patents. While the cluster arguably reduces research and development costs for each of the contributor patentees, it equally has the effect of precluding companies outside the cluster from using patents within the cluster, subject to the terms of exclusivity. To the extent that this collaboration is between competing pharmaceutical entities, the CCI may examine whether the ultimate object of the collaboration is to exclude other players or determine prices. The CCI may also examine whether and to what extent these arrangements create efficiencies in ultimate consumer benefits (eg, the launch of new products that may not have been possible absent such collaboration).

Communications

Can communications or recommendations aimed at the public, HCPs or health authorities trigger antitrust liability?

Communications or recommendations by pharmaceutical companies or trade associations may be considered anticompetitive if they result in the denial of market access or limit production or supply. For instance, in Biocon v Roche, the CCI initiated an investigation against Roche for abusing its dominant position by making representations to various state health authorities and drug controllers against Biocon’s products. In its prima facie order, the CCI equated such representations to ‘abusive denigration’ that could result in denial of market access for Biocon’s products. Similarly, in In Re: InPhase Power Technologies Pvt Ltd (InPhase) v ABB India Limited (ABB) (Case No. 12 of 2016), a letter sent by ABB to customers claiming to be the true owner of certain intellectual property was alleged to have resulted in the denial of market access for InPhase. However, the CCI concluded that since ABB was not dominant in the relevant market, no case arose for examination under section 4 of the CA02.

Authorised generics

Can a patent owner market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

The CCI is yet to deal with cases involving ‘product switching’ (ie, when patent holders either market a generic version of their drug or authorise a third party to do so towards the end of their patent protection). However, as in other cases involving the interplay between IP and antitrust, the CCI will be required to balance the legitimate rights of patent holders to take steps to protect and use their IP, including possibly by engaging in product switching with the likely restriction on new market entry.

Examining cases of product switching from an antitrust lens is likely to be more complex. During the term of its registered patent, an IP holder has the legitimate right to exclude others from making use of its underlying patent used in the drug. During this exclusivity period, a patent holder is free to decide how best to use its patent. Licensing its drug as an authorised generic before the expiry of its patent term would fall squarely within the scope of its rights. However, where the CCI believes that such product switching is being employed with a view to deny market access to other generic manufacturing companies (the patent holder uses its legitimate first-mover advantage to market a generic drug as a cheaper alternative to its more expensive patent well in advance to gain a stronghold in the generic market for the same drug, by the time its patent expires), the CCI may consider whether this conduct may be viewed as an anticompetitive market-leveraging conduct, where the patentee uses its dominant position in the patented market to gain entry, and market share, in the alternative market for generic versions of that drug. Such anticompetitive leveraging may fall foul of section 4 of the CA02, which addresses abuse of dominance conduct.

While abuse of dominance provisions under the CA02 do not specifically require an effects test, the CCI has endorsed an effects-based approach in its more recent decisions, and has considered objective justifications as well (Indian National Shipowners’ Association v Oil and Natural Gas Corporation Limited (Case No. 01 of 2018)). Accordingly, the CCI may consider whether the benefits of introducing a generic drug before the expiry of the patent (greater availability at cheaper price during the term of the patent) outweighs any potential market denial that such conduct may otherwise entail. Where such pre-term licensing is an outcome of collusive conduct (between the patentee and a generic manufacturer) to pre-empt the entry of an otherwise strong generic manufacturer, the risk of antitrust infringement would increase.

Restrictions on off-label use

Can actions taken by a patent owner to limit off-label use trigger antitrust liability?

Actions by a patent holder against off-label drug use are yet to be considered by the CCI. However, the CCI will apply a similar filter (that of balancing the rights of the IP holder with the effect such conditions have on competition in the market) to determine whether such conduct would fall foul of the CA02. Additionally, patent owners may also avail the statutory ‘meet the competition’ defence, which allows dominant firms to defend claims of discriminatory conditions or prices if they have been adopted in response to competitor conduct.

Where there is sufficient evidence to demonstrate that steps taken by the patent holder to limit off-label drugs are legitimate (eg, to limit potential product liability law suits or potential hazardous or unknown effects of alternative uses that may damage the patent holder’s reputation), the CCI is unlikely to consider such action as being problematic under the CA02. In fact, such restrictive conditions may benefit from the safe-harbour provisions under the CA02 that allow IP holders to impose such conditions as are reasonable and necessary to protect its patent rights.

However, where such restrictions on off-label use have been employed without any legitimate or reasonable basis, and only with a view to deny market access to possible competitors or downstream players (eg, to preserve such benefit for itself), it is possible for the CCI to scrutinise this conduct as being anticompetitive.

Pricing

When does pricing conduct raise antitrust risks? Can high prices be abusive?

Pricing conduct under the CA02 may be examined as follows:

  • anticompetitive horizontal agreements (ie, collusive price-fixing conduct under section 3(3) of the CA02);
  • anticompetitive vertical restraints (ie, resale price maintenance (RPM) under section 3(4) of the CA02); and
  • abuse of dominant position (ie, unfair or predatory pricing under section 4 of the CA02).

 

If two or more competitors or potential competitors enter into an agreement to directly or indirectly fix prices or margins, it is presumed to result in an AAEC and is prohibited under the CA02. This would include any agreement to fix bid or tender prices or sales prices of drugs that are the subject of a co-marketing agreement. For instance, the CCI found that the practice of determining trade margin percentages for resale by the trade associations for chemists and druggists qualifies as an anticompetitive horizontal agreement under section 3(3) of the CA02.

The imposition of a condition by a seller to sell goods on the condition that the buyer will resell goods at a fixed price and not below it may be construed as an anticompetitive RPM agreement. For RPM agreements to be treated as anticompetitive, the CCI will need to determine whether the condition results in an AAEC in the relevant market. The CCI has held in the past that, where a party has sufficient market power in the relevant market, the chances of an RPM causing an AAEC increases.

Sector-specific issues

To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

The pharmaceutical industry is driven by innovation and significant investment in the form of research and development activities. IPR protection for proprietary products helps in fostering innovation and attracting investment in research and development. The CA02 recognises the need for balancing the rights of IPR holders and hence provides the limited safe harbour to IP holders for imposing restrictions that are reasonable and necessary to protect rights granted under the IP.